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Expert raises taxing question

THE right choice to create a fair tax system is a comprehensive tax collection mechanism rather than adjusting individual income tax threshold, an industry expert argued yesterday.

The Ministry of Finance on Wednesday said China will adjust the individual income threshold in the future, dependent on how the economy performs. The ministry also said a sharp increase of the threshold will benefit the high-income earners more than the low-income group.

"A manageable increase of the threshold is likely in the future," Freeman Bu, executive director of human capital at Ernst & Young in Shanghai, said yesterday.

China raised the individual income tax threshold from 800 yuan to 2,000 yuan (US$292.83) after two rises in 2006 and last year. Expatriates have a further exemption of 2,800 yuan, pushing their exemption to 4,800 yuan of their monthly salary.

There has been a heated debate to increase the exemption, and a threshold of 5,000 yuan or even 8,000 yuan has been suggested. The ministry, however, said the current exemption threshold is reasonable.

The average monthly salary of Chinese urban residents was 2,435 yuan last year. After deducting insurance and a public housing fund of about 500 yuan, they don't need to pay income tax.

But Vivian Jiang, Deloitte's managing partner of tax and business advisory for east China, argued for a comprehensive levy system.

"Adjusting income tax threshold is not enough," Jiang said. "A more comprehensive levy system is more reasonable, and the authorities are heading in the right direction."

Jiang referred to the tax return filing as one step to pave the way for a comprehensive collection system.

In China, 2.4 million taxpayers who earn more than 120,000 yuan annually filed their tax returns last year, or 3 percent of individual taxpayers. They paid tax of 129.4 billion yuan, or 35 percent of the country's total income tax revenue.

But Bu said he doesn't see a sharp rise in the threshold as China's fiscal revenue is weak this year.


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